Inheritance Tax Receipts Up £800m In A Year – How To Beat The Bill
Inheritance Tax (IHT) receipts from April 2024 to March 2025 have risen by £800m compared to same period the previous year. This is largely a feature of the nil rate band – the amount you can have in your estate before you must pay IHT – and the residence nil rate band (RNRB) – an extra amount that allows you to pass on at least some of your home to your direct descendants IHT free – failing to rise in line with inflation for many years now.
Currently the nil rate band sits at £325,000, while the RNRB is £175,000 for each of us, meaning a maximum of £500,000 per person can be passed on free of IHT outside of the spousal exemption. There is no IHT between spouses or civil partners, so anything passed between them on death does not face an IHT charge. Also, if one spouse doesn’t use the entirety of their nil rate band or RNRB on death, any remaining amount can be used by the second spouse at the time of their death, which could increase the amount that is passed without an IHT liability in that instance.
Tim Snaith, Partner at law firm Winckworth Sherwood, said: “IHT revenues continue to steadily rise due to the prolonged freeze on IHT thresholds. The nil-rate band (NRB) and the residence nil-rate band (RNRB) have not been adjusted for inflation or rising property values, which means more estates are becoming liable for the tax as asset values increase. It remains a persistent and unavoidable inheritance tax planning issue, and one that should not be ignored.”
Will the IHT thresholds increase soon?
Unfortunately, the IHT thresholds are due to be frozen until at least 2030, which means even more families will find themselves caught in the IHT net at a time when they are facing the grief of losing a loved one. As property prices continue to rise, even more families, especially in London and the south east, will face IHT bills unless the person who is deceased has taken the time to plan ahead and mitigate the number of assets that they leave behind that will face IHT.
This is one of the most disliked taxes, particularly as many people’s estates will face a 40% tax charge for the first time after their death. People often think IHT is something only wealthy people need to think about. But this is no longer the case, and things are about to get worse for those left behind.
Shaun Moore, tax and financial planning expert at Quilter, said: “Property prices have grown rapidly in recent years, particularly in areas such as London and the south east, which in many cases will leave little to no room for additional assets to be left to loved ones before the tax is applied. Additional policy changes, including restrictions on Agricultural Property Relief and Business Relief from April 2026, as well as unused pensions falling within the scope of IHT from 2027, will place additional strain on families.
“Tax bills are becoming increasingly difficult to mitigate, and this will only worsen as the freeze on the various thresholds continues and as policy changes set in. Seeking professional financial advice will be key to ensuring no more of your money goes to the taxman than is absolutely necessary.”
Mitigating your IHT bill
You won’t be the one worrying about paying the IHT bill as you will have left this mortal coil, but for those left behind, a lack of planning to mitigate IHT applied to your estate can create serious problems. They may be forced to sell assets to cover the costs, which might include the family home if there is no other way to pay for any IHT due.
However, there are some ways you can reduce the amount your beneficiaries would need to pay. This includes giving away some assets within your lifetime, providing it doesn’t affect your standard of living. You can also write some assets into trust, which places them outside the IHT net. This is particularly useful if you have a life insurance policy, as writing this into trust enables your family to receive that money much faster after you have died, and it is not subject to IHT. Most insurers can write this kind of policy into a trust for you, and it is definitely worth asking about.
One of the most important things to do is keep your will up to date. This can not only ensure the right people get the things you want them to receive, but it can also reduce the IHT bill on death.
Mr Snaith said: “To avoid unexpected financial burdens, it is crucial for individuals to regularly review their wills and estate planning, with professional legal advice, to manage their wealth efficiently.”
We can help you meet your obligations
If you would like to know more about how to reduce your IHT liability within the rules, then please get in touch and we would be happy to give you the guidance you need.
